Which statement best describes timing of revenue recognition in accrual accounting?

Which statement best describes timing of revenue recognition in accrual accounting?

• A. Revenue is recognized when cash is received
• B. Revenue is recognized when performance obligation is satisfied, often at delivery
• C. Revenue is recognized only at year-end
• D. Revenue is recognized when costs are incurred

Answer: (B)

In accrual accounting, revenue is recognized when the company has satisfied its performance obligation by delivering the goods or performing the service, i.e., when the customer gains control and can benefit from it. This timing reflects when the revenue is actually earned, not when cash is received. That’s why revenue is often recognized at delivery, though it can be over time if the contract transfers control gradually. Cash collection timing doesn’t determine revenue (that would be cash-basis accounting). Recognizing revenue only at year-end would ignore the actual point at which the obligation was satisfied, and recognizing revenue when costs are incurred mixes up revenue with expenses. So the statement that revenue is recognized when the performance obligation is satisfied, often at delivery, best describes accrual accounting.

In accrual accounting, revenue is recognized when the company has satisfied its performance obligation by delivering the goods or performing the service, i.e., when the customer gains control and can benefit from it. This timing reflects when the revenue is actually earned, not when cash is received. That’s why revenue is often recognized at delivery, though it can be over time if the contract transfers control gradually.

Cash collection timing doesn’t determine revenue (that would be cash-basis accounting). Recognizing revenue only at year-end would ignore the actual point at which the obligation was satisfied, and recognizing revenue when costs are incurred mixes up revenue with expenses. So the statement that revenue is recognized when the performance obligation is satisfied, often at delivery, best describes accrual accounting.